Oil majors face setback in $5 billion Kashagan environmental fine appeal

(Bloomberg) – The oil majors that operate Kazakhstan’s second-largest field lost another court appeal over an environmental fine of about $5 billion, further narrowing their options to fight the penalty. 

In a ruling on April 8, an Astana-based court upheld an earlier decision to impose a fine of 2.356 trillion tenge on the Kashagan oil venture for storing excessive amounts of sulfur at the field, the Ministry of Ecology and Natural Resources said in emailed reply to questions from Bloomberg. 

Kashagan’s operator, the North Caspian Operating Co. said in an emailed statement that it disagrees with the court’s ruling and reiterated that its sulfur-management operations were in full compliance with the law. The company and its shareholders will “pursue all available avenues of recourse against this decision to defend their rights.”

The sulfur fine is connected to a wider $166 billion international arbitration centered around Kashagan, the country’s second-largest oil field. Kazakh authorities have being pushing for higher revenue from the nation’s resources and have sued the venture partners in international arbitration. Most of that amount relates to claims for lost revenue, but also includes environmental violations and contracts that the state alleges were tainted by corruption.

Kazakhstan is Central Asia’s biggest oil producer and the second-largest supplier to Europe. The nation’s importance increased as the continent moved away from Russian energy supplies following its full-scale invasion of Ukraine in 2022, and more recently by disruption to Persian Gulf supplies caused by the Iran-U.S. conflict.

The Kashagan venture still has the option of filing a cassation appeal against the decision, which has now entered into legal force, said people familiar with the matter who spoke on condition of anonymity.

NCOC is owned by Kazakhstan’s state oil and gas company KazMunayGas alongside Eni SpA, Shell Plc, TotalEnergies SE, Exxon Mobil Corp., Inpex Corp. and China National Petroleum Corp.  

The companies are challenging the fine in other ways. In February, the oil majors filed for international arbitration. They are also appealing the sulfur penalty to the Committee for Environmental Regulation and Control, which has yet to make a decision, the Ministry of Ecology said. 

KazMunayGas declined to comment. Eni didn’t respond to a request for comment. Shell, TotalEnergies and Exxon referred questions to NCOC. CNPC did not respond to a request for comment. A spokesperson for Inpex declined to comment.